COMMISSIONER OF INCOME TAX Vs. LAKHDHIR LALJI

JUDGEMENT

(1.) THE assessee is a partnership firm and the asst. year is 1963 64, the relevant accounting year being S. Y. 2018. The ITO passed the final order in assessment proceedings against the assessee on March 31, 1964 ; and he came to the conclusion that the assessee firm, which deals in garlic, had not shown 1,383 bags of garlic in the stock register as part of the stock at the end of the year of account. The ITO came to the conclusion that these 1,383 bags of garlic were sold out and out by the assessee and the sale proceeds were not disclosed as part of the income of the assessee firm for the accounting year. Under these circumstances, he added a sum of Rs. 58,000 as income which had been concealed by the assessee. He assessed the assessee firm accordingly and he also issued a notice under S. 274 for concealment of income. Against this assessment order the assessee appealed to the AAC. That officer came to the conclusion that there was no sale out and out of 1,383 bags as had been held by the ITO but he came to the conclusion that those 1,383 bags were included in the stock, but the assessee had under valued its stock. The AAC came to the conclusion that on the footing of under valuation of the stock held by the assessee at the end of the accounting year, a sum of Rs. 34,000 should be added and not the sum of Rs. 58,000 as had been done by the ITO. Against the decision of the AAC there was a further appeal to the Tribunal and the Tribunal by its order, dated February 20, 1967, held that there was under valuation of the stock but on this footing, according to the Tribunal, an amount of Rs.20,213 should be added to the income as shown in the return and not the sum of Rs.34,000 nor a sum of Rs. 58,000 as had been done by the AAC and the ITO, respectively.

(2.) IN the meanwhile penalty proceedings for concealment of income were initiated by the ITO by the issue of the notice under S. 274 and in these proceedings it was found that the penalty which the assessee would be called upon to pay was more than Rs. 1,000, and, therefore, the case was referred by the ITO to the IAC. By the time the IAC disposed of the penalty matter, the AAC had already disposed of the appeal in assessment proceedings and the IAC took a note of the fact that the finding of the ITO that there had been a sale out and out of 1,383 bags had been set aside by the AAC in the assessment proceedings. The IAC, however, held that there was a concealment of income by under valuation of stock and he came to the conclusion that the assessee deliberately concealed this fact from the ITO and as such deliberately furnished inaccurate particulars in its return of income. The IAC, therefore, held that the provisions of S. 271(1)(c) were clearly attracted and that the penalty be levied. He imposed a penalty of Rs. 7,500. Against this order of the IAC levying the penalty of Rs. 7,500, there was an appeal to the Tribunal and the contention on behalf of the assessee at the time of that appeal was that the IAC had no jurisdiction to impose the penalty under S. 271(1)(c). It was contended in this connection before the Tribunal that under s. 271(1)(c) a penalty for concealment of income could be imposed by the IAC only if the ITO in the course of any proceedings before him is satisfied that there was concealment of income ; but that in a case where a finding in regard to concealment of income was recorded by the AAC and not by the ITO, the jurisdiction to impose penalty, if any, lay with the AAC and not with the IAC. The Tribunal upheld this contention and held that the jurisdiction of the IAC in regard to the imposition of penalty was restricted to those items of concealment of income in regard to which the ITO was satisfied that there was concealment of income. The Tribunal, therefore, held that the order of the IAC imposing penalty for concealment was without jurisdiction and it, therefore, allowed the appeal and set aside the order levying the penalty. Thereafter, at the instance of the Revenue, the following question has been referred to this High Court :

(3.) IT is clear from these provisions of ss. 271, 274 and 275 that it is open to the ITO or the AAC in the course of assessment proceedings with which that particular officer is dealing, to direct that a person who has concealed the particulars of his income or furnished inaccurate particulars of his income shall pay the penalty contemplated by Chapter XXI. The satisfaction at the time of taking the decision that penalty proceedings should be directed is a prima facie satisfaction and the prima facie satisfaction must be that the person concerned has concealed the particulars of his income or furnished inaccurate particulars of his income. It is true that once that prima facie satisfaction has been arrived at both the ITO and the AAC derive the jurisdiction under S. 271 to commence the penalty proceedings. But, under S. 274 the order imposing the penalty can only be passed after the assessee has been given a reasonable opportunity of being heard. As a part of that reasonable opportunity of being heard, the assessee must be told as to what is the particular satisfaction the ITO or the AAC, as the case may be, has arrived at, viz., whether the satisfaction is that the assessee has concealed the particulars of his income or whether the satisfaction is that he has furnished inaccurate particulars of such income. It is possible that the notice under S. 271(1)(b) merely may set out the two grounds but such notice will have to be r/w reference to the assessment order and by reading the notice for the commencement of penalty proceedings and the assessment order together, it will be possible for the assessee concerned to ascertain as to whether the charge against him is of concealment of the particulars of his income or whether the charge is of furnishing inaccurate particulars of his income. In the instant case, the notice for penalty proceedings was directed to be issued by the ITO by including the following sentence in the assessment order :